Residential Rental Guidelines

Attention property owners and property management companies: Remember even if you did not rent the property for a filing period, you must still file a $0 TPT return.

Residential Rental is the rental of real property for a period of 30 or more consecutive days for residential purposes only and not commercial. Residential rental properties are also subject to tax, known as transaction privilege tax (TPT), and imposed when engaged in business under the residential rental classification by the Model City Tax Code. Some cities, not all, opt to tax residential rental income.

TPT is imposed when renters or property management companies engage in business under the residential rental classification by the Model City Tax Code. Individual owners of taxable rental properties are required by law to obtain a TPT license with ADOR regardless if the owners rent the property themselves or employ a property management company (PMC). A license is only required for cities that impose a tax on residential rental activity. To determine if a city tax license is required, taxpayers can use the Residential Rental Licensing Matrix.

For more information, please see What residential rental income is taxable?

Residential Rental Tax Changes

Starting January 1, 2025, residential rental property owners should no longer collect and remit any city transaction privilege tax (TPT) on the income derived from long-term lodging stays of 30 days or more to ADOR. (Laws 2023, Chapter 204 and A.R.S. § 42-6004 (H)).

This applies to licensees that are registered and have filed using business code 045 indicating that license is engaged in the business classification of residential rental. Residential rental is the rental of real property for a period of 30 or more consecutive days for residential (i.e. noncommercial) purposes only. 

Currently, there is no state or county tax imposed on residential rentals, and the upcoming change to the tax law will eliminate the city TPT. While there will no longer be a city TPT obligation beginning January 1, 2025, you must still register the property with the county assessor to comply with landlord tenant laws and other compliance requirements from government entities. Owners can still file for prior periods online even if the license has been canceled or the location has been closed.

For tax periods before January 1, 2025:

  • You must still comply with filing and payment requirements, and
  • These periods remain subject to audit as allowed by statute.

Please note: Hotel, motel, or other transient lodging businesses that book stays for fewer than 30 days must still collect and remit TPT under the transient lodging or hotel classification. 

What Should I Do?

Please continue to collect, file, and pay residential rental TPT for periods through December 31, 2024, filed in January 2025. For periods beginning January 1, 2025 and thereafter, it is no longer needed to collect, file, and pay residential rental TPT. 

No further action or steps need to be taken to cancel the license. Be aware that cancelation of the license will not exempt you from any liabilities related to periods before January 1, 2025. If liabilities are unpaid, enforcement actions may be taken against you. Log on to AZTaxes.gov to resolve any outstanding liabilities or missing returns for the license.

Information and Resources

Glossary of Terms:

ADOR: Arizona Department of Revenue

PMC: Property Management Company

PO: Property Owner

POA: Power of Attorney – A POA establishes a PMC as the appointee to act on behalf of the PO in all matters concerning the collection and remittance of TPT. This document must be completed and maintained in the PMC file.

TPT: Transaction Privilege Tax
Engage: When a PMC adds property owners to its AZTaxes Property Management license to file and pay on their behalf.

Disengage: When a PMC deletes a property owner from its AZTaxes Property Management license to sever the relationship.

Linking: A process where a PMC connects transaction privilege/use, withholding or corporate tax accounts to its AZTaxes account.

Workshops

ADOR offers workshops dedicated for property owners and property management companies.  Check out the next event here.

For more information and resources on residential rentals, visit the following links:

If you need further assistance, please call (602)716-RENT(7368), or email [email protected].

You can register, file and pay online at www.AZTaxes.gov. It is fast and secure.

Note: Pursuant to A.R.S. § 42-6013, ADOR has developed a new consolidated return that separately identifies the gross income and deductions for each owner’s property location.

 

 

Expiration of the Residential Rental Tax FAQs

ADOR is informing property management companies and residential rental property owners of upcoming changes to Arizona tax law for residential rental properties.
The transaction privilege tax (TPT) applicable to the rental of real estate for residential purposes (residential rental) ends as of January 1, 2025. (Laws 2023, Chapter 204 and A.R.S. § 42-6004 (H))

Starting January 1, 2025, residential rental property owners should no longer collect and remit any city transaction privilege tax (TPT) on the income derived from long-term lodging stays of 30 days or more. (Laws 2023, Chapter 204 and A.R.S. § 42-6004 (H))

This applies to TPT licensees that are registered and have filed returns using business code 045  for engaging in the business classification of residential rental. Residential rental is the rental of real property for a period of 30 or more consecutive days for residential (i.e. noncommercial) purposes only.

Currently, there is no state or county tax imposed on residential rentals, and the upcoming change to the tax law will eliminate the city TPT. You will need to file any missing tax returns and pay outstanding liabilities. Owners can still file for prior periods online even if the license has been canceled or the location has been closed.

For tax periods before January 1, 2025:

  • You must still comply with filing and payment requirements, and
  • These periods remain subject to audit as allowed by statute.

Taxpayers will not be able to select the residential rental classification when filing their TPT return for periods after December 2024, but the business code will be available when filing for prior periods.

Hotel, motel, or other transient lodging businesses that book stays for fewer than 30 days must still collect and remit transaction privilege tax under the transient lodging or hotel classification.

To prepare for January 1, 2025, accurately keep transaction and rental records to distinguish income subject to the following tax classifications: Residential Rental, Leasing, & Licensing for Use (045), Hotels (044), Hotel/Motel (Additional Tax) (144), Transient Lodging (025), and Commercial Rental, Leasing, & Licensing for Use (213).

If a licensee is only using business code 045 and not engaged in any other business activity, the license will be canceled by ADOR effective December 31, 2024. Please also file any missing tax returns and pay outstanding tax liabilities for prior tax periods. Canceling the license does not exempt the licensee from previous tax liabilities or taxes that have not been reported. If liabilities are unpaid, enforcement actions may be taken. Please visit TPT Tutorials on azdor.gov for more information.

If you rent real property for a period of 30 or more consecutive days for residential purposes only and not commercial, you do not need to renew your license. For 2025, ADOR will not renew licenses for taxpayers that are only registered and file returns for residential rental. 

 

ADOR is canceling licenses that only using business code 045 and not engaged in any other business activity. Be aware that cancellation of the license will not exempt you from previous tax liabilities or taxes that have not been reported. If liabilities are unpaid, enforcement actions may be taken.

  • If you are engaged in other business activities along with using business code 045 on the same license, ADOR is removing the location(s) associated with the business code 045. Please ensure the locations and business code are removed when filing your first 2025 TPT return. 
  • Please also file any missing tax returns and pay outstanding tax liabilities for prior tax periods.  
  • Removing the location(s) will not exempt the licensee from previous tax liabilities or taxes that have not been reported. If liabilities are unpaid, enforcement actions may be taken.

Revocation: A taxpayer (property owner) can revoke a Form 285 and/or Form 285-PMC by submitting a notice to ADOR at [email protected]. Please include a copy of the form or list the taxpayer’s name, license number, tax type, tax periods, and name of the appointee that you are revoking.

Withdrawal: The PMC or representative can send a notice to ADOR at [email protected] that they are withdrawing as the taxpayer’s representative. Please include a copy of the form or list the taxpayer’s name, license number, tax type, and tax periods.

Expiration: Form 285-PMC expires six years after the form is signed, unless a taxpayer submits a written revocation or the property management company appointee submits a written withdrawal to ADOR before then.

 

For more information on this change and frequency asked questions, please visit azdor.gov/business/residential-rental.